Hungary: February Inflation Report Summary
Overview:
The February Inflation Report sees the National Bank of Hungary (NBH) revising up its inflation forecast for 2010 by 0.5 percentage points (pp) and for 2011 by 0.4 pp. The growth outlook is only revised up modestly in 2010 (by 0.4 pp) and remains unchanged in 2011. Inflation was higher than expected in January and remains well above the medium-term inflation target of 3%. Positive base effects from last year’s tax rises should bring inflation down sharply in H2. Further, weak domestic demand and a slack labour market could push inflation well below target in 2011 according to the NBH. Nevertheless, the upward revision to the inflation forecast, the large cumulative interest rate cuts we have seen to date and uncertainty about the course of fiscal policy beyond upcoming elections argue for a pause in cuts.